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MARKET REPORT: Tesco in demand after analysts predict bumper profits

Upgrade: Morgan Stanley expects Tesco to report profit of £2.53bn for the year to mid-April - above the £2.4bn range and £2.5billion the grocer donated in January

Shares in Tesco rose as analysts backed Britain’s biggest grocer to produce bumper profits – with investors in line for further donations.

Investment bank Morgan Stanley expects Tesco to report a profit of £2.53bn for the year to mid-April – above the £2.4bn range sterling and £2.5bn which the grocer donated in January.

In this business update, Tesco also reiterated its forecast of generating at least £1.8bn of cash by the end of its financial year.

But Morgan Stanley has listed £1.87bn and believes Tesco has room for another £200m of share buybacks.

The broker raised Tesco’s rating from ‘overweight’ to ‘equal weight’ and raised the target price from 263p to 296p.

Upgrade: Morgan Stanley expects Tesco to report profit of £2.53bn for the year to mid-April - above the £2.4bn range and £2.5billion the grocer donated in January

Upgrade: Morgan Stanley expects Tesco to report profit of £2.53bn for the year to mid-April – above the £2.4bn range and £2.5billion the grocer donated in January

He also said the grocer should resist the pressures of rising food prices as the latest industry data shows volumes are holding up even as prices rise.

“Food retail typically outperforms during bouts of market volatility,” Morgan Stanley said.

And, regarding the rumors surrounding a possible sale of Tesco Bank, Morgan Stanley said it had more than £300million of cash available which could be paid out.

Tesco shares, up 17% this year, rose 3%, or 7.6p, to 262.5p.

Other retailers fared well, with Ocado up 7.7%, or 34p, to 478p while Sainsbury’s added 1.1%, or 3p, to 267.8p.

In the broader market, the FTSE 100 rose 1.1%, or 80.02 points, to 7,564.27 and the FTSE 250 rose 1.3%, or 236.12 points, to 18,632, 81.

London’s top index made gains for a third consecutive session on hopes that turmoil in the banking sector could be contained.

Stock Watch – Versarien

Graphene company Versarien could appeal to investors for funding to shore up the business.

Chairman Diane Savory and the other two non-executive directors have agreed to work without pay to help reduce costs.

It also cut staff and cut non-essential spending.

He said he could raise new money through divestitures, grants, bringing in investors or placing additional shares.

And a recovery specialist has been recruited.

The shares fell 20.6%, or 0.64p, to 2.45p.

Barclays gained 3.5%, or 4.84p, to 142.02p, HSBC rose 2.4%, or 12.9p, to 554p and Lloyds rose 1.6%, or 0.73p, to 47.13p.

Shore Capital analyst Gary Greenwood said the rally showed signs UK banks were in a “relatively strong position relative to their US peers”.

Oil prices rose, with Brent crude hitting nearly $80 a barrel.

It sent BP up 0.5%, or 2.7p, to 510.5p while Shell added 1.6%, or 35p, to 2,298p. Asset managers also staged a rally with M&G up 3.7%, or 6.6p, at 185.95p while L&G rose 3.1%, or 7.2p, at 236.8p and Phoenix Group gained 3.2%, or 17.4p, to 566.8p.

But Smith & Nephew slipped after Barclays downgraded the medical device maker from ‘underweight’ to ‘overweight’ and cut the target price to 1100p from 1480p. The shares fell 1.1%, or 12.5p, to 120.5p.

At Essentra, the components activity got off to a good start for the year with orders 8 pc ahead of 2022 at constant scope. It rose 5.4%, or 9.6p, to 187p.

Meanwhile, defense group Chemring’s UK subsidiary has secured an order worth £43million to deliver vital components used in the next-generation light anti-tank weapon system.

It will take Chemring some time to get the components, meaning they will be delivered to customers from 2024 to 2026. It rose 0.7%, or 2p, to 273.5p.

Moneysupermarket climbed 4.8%, or 11.6p, to 255.8p after UBS raised the comparison website’s target price to 270p from 250p.

The boss of kettle control maker Strix says recent sales data this year shows ‘green hits are appearing’ as his business eyes a return to growth after revenue fell 10.5% to £106.9m in 2022 while profits fell 31.1% to £22.2. million. The shares climbed 5.7%, or 5p, to 93.2p.

At Michelmersh, the brickmaker said orders have already started this year as it seeks to meet the needs of high-end markets in the UK and Benelux.

Last year, revenue jumped 15% to £68.4m while profits soared 17.2% to £11.4m. The shares gained 3.3%, or 3p, to 94p.

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